The Dodgers Dodged a Bullet

A recent Forbes article by Mike Ozanian goes through the sale and purchase of the Los Angeles Dodgers baseball team of Major League Baseball (MLB).  Magic Johnson, a former Los Angeles Lakers basketball star in the NBA most known for his revelation that he is HIV positive, is the figurehead of the group that has completed its purchase of the LA Dodgers.  Johnson's group won the Dodgers' bidding war with a record more than $2 billion dollar offer.  While Johnson is not the main monetary contributor, a group called the Guggenheim partners along with Johnson and a few others put forth (obviously) large sums of money to get this MLB franchise.  To put this in perspective, the previous record price for an American sports franchise was a $1.1 billion bid that won Stephen M. Ross the Miami Dolphins (at this point everyone should know, but yes the Ross from the Ross School of Business).  Johnson's group may have overpaid for the Dodgers as far as actual assets, but the auction drove up the price to unseen heights.  Johnson and his partners have to hope that they can turn around a franchise recently in bankruptcy.

So how does something that a group would pay over $2 billion go up for sale in the first place? The answer lies in the poor management of previous owner Frank McCourt, but we will soon see he still made out pretty well from his investment in the Dodgers.  So, McCourt paid $330 million for the Dodgers team in 2004 and $100 million for the stadium and surrounding property.  Seven years later, McCourt had the team $600 million in debt, and the employees were bouncing checks at the bank (a whole dilemma that the Dodgers had to take care of with their off-field reputation taking a pretty big hit).  The Dodgers were really run into the ground due to some poor management on McCourt's part, but he was almost able to salvage his team's misfortune with a new TV deal.  This deal, however, was blocked by the MLB's commissioner Bud Selig and it pretty much spelled the end for McCourt as the owner of the Dodgers.  McCourt decided to file for bankruptcy in December of 2011, and had to sell the team in order to take care of the debt he created as well as pay a settlement to his now ex-wife.  The Dodgers, however, greatly increased in value over the years McCourt was in charge due to their location as a sports franchise in LA.  After making over $2 billion on the sale, less the $430 million it cost to buy the team, $573 he owed in debt, and $131 million he had to pay his ex, McCourt left the Dodgers, a team he basically screwed up and managed into the ground, with over $867 million gain.  Huh?  However, as I said earlier, the purchasing groups that entered a bidding war for the Dodgers really saw the potential for great profits in the LA market, and they also set the standard for price of the team with their $2 billion price.

During McCourt's tenure as the owner, the Angels organization changed its name from the Anaheim Angels to the Los Angeles Angels of Anaheim in attempts to get more of the fan base from the Los Angeles area.  The Angels also seemed to be more suited for the Los Angeles because they spent more money and seemed more flashy in their player signings.  (The Angels recently signed free agent Albert Pujols to one of the largest contract in the history of baseball.)  In a comparison of team salaries from 2011, the Angels ranked fourth in the MLB compared to the Dodgers number twelve ranking.  In addition to this, the Dodgers last appearance in the playoffs was three years ago.  There is a lot of room for this LA franchise to grow because of its market, it just needed to have to right group running the show.

 Who better to help run the show than the star of the Lakers' Showtime of the 80's.  Magic Johnson will bring back the LA, Hollywood feel that the team was lacking under its previous management.  This change in management will potentially lead to greater profitability for the Dodgers' franchise.  The Dodgers already have great resources on their baseball team in Matt Kemp, last year's runner-up MVP, and Clayton Kershaw, last years National League Cy Young Award winner (best pitcher in the NL).  The operations workers are also looking for new ownership so that they won't have anymore issues with bouncing checks, so they will likely embrace this new ownership more than a typical team's operations crew.  The players are also embracing the new ownership.  Matt Kemp was excited to the point that ESPN.com quotes him as saying, "I started looking at the texts, and everyone was saying that Magic was our owner.  I thought people were just messing with me.... This is a pretty good day for the Dodgers."  The people within the Dodgers organization are excited about the new ownership bringing in proven winners to run the team operations, and they feel as though the culture is shifting to being a winning one.  The players and workers both feel as though they will finally be paid what they deserve for the work they provide; something they feel this new leadership will accomplish.

The values of the team will also be restored.  The Angels, while the second team to be labeled as a LA team, seemed to be the better of the two teams in Los Angeles as far as values of the area.  The Dodgers can spend another $34 million and still not surpass the Angels payroll spending, so they have some more room to make flashy pickups and increase the buzz of the team around town.  In order to improve the value chain, the new ownership hired Stan Kasten to run day-to-day operations.  Kasten was in charge of the Atlanta Braves during their impressive streak of making the playoffs from 1991 - 2005, and he has proven that he knows how to run a team.  Magic also said he would be around the team, helping them every day in more of a figurehead role.

The Dodgers don't have to necessarily start winning a lot of games right away, but if they start creating more of a buzz for the team and it leads to success, the over $2 billion investment may be worth it.